Kiwi borrowers hoping for cheaper mortgages in 2025 might face disappointment, according to economist Tony Alexander. The real wildcard lies in the United States.
Shifting US Federal Reserve policies, spurred by a strong jobs market and potentially unpredictable economic policies from the incoming president, could ripple through to New Zealand’s economy.
Businesses are ramping up price hikes, with 43% planning increases over the next year, as revealed in December’s ANZ Business Outlook Survey.
This is paired with rising interest rate expectations in the United States, where a strong jobs market, generally linked to fueling inflation, has reduced the chances of further Federal Reserve rate cuts.
Alexander noted, “Some analysts now think the first Fed cut last year was a mistake,” adding that this shift is already impacting New Zealand, with the Kiwi dollar sliding to its lowest levels since October.
The Reserve Bank may cut the cash rate at its February review, but Alexander predicts the reduction will likely be limited to 0.25%. He warns borrowers not to expect significant drops in fixed mortgage rates for terms of two years or more.
However, Alexander cautions against rigid views on interest rate trends, admitting, “Potential is high for all of us forecasters to be severely embarrassed.”
Centrist Ltd.